Category: Climate insurance · Reviewed by Chrissie Anderson, Client Executive · Last reviewed 2026-06-10
Climate change insurance is the umbrella term used in the UK market for insurance arrangements that respond to losses and liabilities arising from climate change, including physical hazards (flood, windstorm, wildfire, drought), transition exposures (policy, technology and market shifts towards a low-carbon economy) and climate-related liability claims against directors, advisers and emitters.
Category: Climate insurance Also known as: Climate insurance; Climate risk insurance; Climate-related insurance cover Established / Date: Concept formalised by the Prudential Regulation Authority in SS 3/19 (April 2019) Related concepts: Physical climate risk insurance, Transition risk insurance, Liability climate risk
Climate change insurance is not a single product but a portfolio of cover types and underwriting practices that respond to the three categories of climate risk identified by the Task Force on Climate-related Financial Disclosures (TCFD): physical, transition and liability. In the UK market these risks are insured under existing policy forms — property, business interruption, directors’ and officers’ (D&O), professional indemnity, environmental impairment liability, marine, energy and credit — rather than under a bespoke “climate policy”.
The Prudential Regulation Authority (PRA) describes climate risks as financially material, foreseeable and capable of being managed through a strategic, forward-looking and embedded approach across underwriting, investment and operations.[1] Lloyd’s and the wider London Market accordingly treat climate change as a cross-cutting underwriting consideration rather than a single line of business.
In practical terms, climate change insurance covers (a) first-party damage and business interruption from acute weather events and chronic shifts in climate, (b) liability for inadequate disclosure, greenwashing or failure to manage transition exposures, and (c) parametric and structured solutions designed to plug gaps left by traditional indemnity cover.
The principal UK regulatory anchor is PRA Supervisory Statement 3/19, “Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change”, published in April 2019 and supplemented by a “Dear CEO” letter in July 2020 setting expectations for full embedding by the end of 2021.[1] SS 3/19 requires PRA-authorised insurers to address climate risk through governance, risk management, scenario analysis and disclosure.
Disclosure obligations have been hard-wired into UK company and listing law. Premium and standard listed issuers must include a TCFD-aligned compliance statement under Listing Rule LR 9.8.6R(8), introduced by FCA Policy Statement PS20/17 (December 2020) and extended by PS21/23.[2] Large companies and LLPs must include climate-related financial disclosures in the strategic report under the Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 (SI 2022/31), which inserted s.414CB(A1) into the Companies Act 2006 for financial years beginning on or after 6 April 2022.[3] From 1 January 2024, IFRS S2 “Climate-related Disclosures” applies in jurisdictions that adopt the ISSB baseline.[4]
UK insurers reflect climate risk in three ways. First, in underwriting: pricing, flood and windstorm modelling, exclusion language (notably communicable disease and cyber war exclusions are now joined by sub-limits for named perils), and risk selection in coal, oil sands and Arctic exploration. Second, in investment: aligning fixed-income and equity portfolios with net-zero pathways, often through the Net-Zero Insurance Alliance commitments or successor frameworks. Third, in capital: holding capital against catastrophe and stranded-asset scenarios as required by the PRA’s stress testing.
Lloyd’s published its first ESG Report in December 2020 setting out phased restrictions on new thermal coal, oil sands and Arctic energy exploration from 1 January 2022, with a full exit by 1 January 2030 from direct investments in those activities. Managing agents are expected to embed climate risk in their Solvency Capital Requirement (SCR) and Own Risk and Solvency Assessment (ORSA).
For UK SMEs and corporates, climate change insurance manifests in renewal terms: flood postcode loadings, business interruption indemnity period reviews, supply chain endorsements and D&O wording covering Companies Act 2006 s.414CB disclosure failings. Larger insureds with listed parents must align their own climate disclosures with TCFD and IFRS S2 and may be asked to evidence scenario analysis when buying D&O or financial lines cover.
Brokers should expect insurers to request emissions data, transition plans and physical asset geocoding at renewal. Where traditional indemnity cover is restricted — for example flood cover in Flood Re-ineligible commercial premises — parametric solutions and the Flood Re scheme for eligible domestic risks provide alternative responses.
A Yorkshire manufacturer with a riverside site experiences a 1-in-100-year flood in winter 2025. Its commercial combined policy responds for property damage (£3.2m) and business interruption (£1.8m) within the policy sub-limits. Because the company is part of a London-listed group, its TCFD-aligned strategic report had already identified the site as exposed under a 2°C scenario. The D&O insurer renews on standard terms, citing the scenario analysis as evidence of board oversight under PRA SS 3/19 expectations and Companies Act 2006 s.414CB.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-10. Next review: 2026-12-10.
Apex Insurance Brokers Limited. Authorised and regulated by the Financial Conduct Authority, FRN 724952. Registered in England and Wales, Companies House 07014570. This entry provides general information about UK insurance concepts and is not regulated advice. Consult your insurance broker on your specific position.
Apex Insurance Brokers serves UK professional services firms and commercial businesses. Call 0117 325 0027, email hello@apexinsurancebrokers.co.uk, or request a quotation.
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